HOUSE OF COMMONS
Fifth Standing Committee on Delegated Legislation
DRAFT DOUBLE TAXATION RELIEF (TAXES ON ESTATES OF DECEASED PERSONS AND INHERITANCE ON GIFTS) (NETHERLANDS) ORDER 1995
Thursday 14 December 1995
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The Committee consisted of the following Members:
Chairman: Mr. Nicholas Winterton
Abbot, Ms Diane (Hackney North and Stoke Newington)
Bray, Dr Jeremy (Motherwell South)
Cann, Mr. Jamie (Ipswich)
Cohen, Mr. Harry (Leyton)
Cunningham, Mr. Jim (Coventry, South East)
Day, Mr. Stephen (Cheadle)
Fox, Dr. Liam (Woodspring)
Hall, Mr. Mike (Warrington, South)
Jack, Mr. Michael (Financial Secretary to the Treasury)
Kellet-Bowman, Dame Elaine (Lancaster)
Lloyd, Sir Peter (Fareham)
Marland, Mr. Paul (West Gloucestershire)
Mellor, Mr. David (Putney)
O'Brien, Mr. Mike (North Warwickshire)
Porter, Mr. Barry (Wirral, South)
Skeet, Sir Trevor (North Bedfordshire)
Sumberg, Mr. David (Bury South)
Mr. M. Hennessy, Committee Clerk2 3 Fifth Standing Committee on Delegated Legislation Thursday 14 December 1995
[MR. NICHOLAS WINTERTON in the Chair]
The Chairman: I welcome all members of this Fifth Standing Committee on Delegated Legislation. If I do not see you again before Christmas, I hope that you will have a happy Christmas and, for all our sakes, a prosperous and peaceful new year.
The Financial Secretary to the Treasury (Mr. Michael Jack): I beg to move, That the Committee has considered the draft Double Taxation Relief (Taxes on Estates of Deceased Persons and Inheritances on Gifts) (Netherlands) Order 1995. On behalf of members of the Committee, Mr. Winterton, I reciprocate your kind and warm words of festive greeting. So that we can move on swiftly to our business, I shall commence my short remarks on the order relating to the Netherlands. The Order deals with a protocol to the double taxation convention entered into in 1980 between the United Kingdom and the Netherlands. It relates to estates, inheritances and gifts. The convention refers to capital transfer tax and any identical or substantially similar taxes that are imposed after the date of signature of the convention. The protocol—the second such agreement to be negotiated—updates the convention by introducing a specific reference to the United Kingdom's inheritance tax. It will put beyond doubt that inheritance tax is covered by the convention, and will dispose of any possible doubt about the status of inheritance tax under the convention. The protocol also contains amendments to reflect both the inheritance tax treament of gifts made seven years before death and the definition of the United Kingdom national as provided under the British Nationality Act 1981. The existing convention covers the Netherlands and the Netherlands Antilles. However, the territory of Aruba has since ceased to be part of the Antilles and, at the request of the Netherlands, the protocol reflects that change. The protocol provides welcome improvements to the existing convention and I accordingly commend it to the Committee.
Mr. Mike O'Brien (North Warwickshire): The Order is broadly supported by the opposition, but I wish to ask the Financial Secretary several questions 4 about it. I appreciate that he may not be able to deal with them all today, but I should be happy to receive his comments in writing in due course when he has had the opportunity to consider them fully. Three other treaties that are subsequent to the introduction of capital transfer tax have not yet been amended. They are the treaties of Ireland in 1978, of South Africa in 1979, and of the United States of America in 1979. The only other treaty that is subsequent to the introduction of CTT is the Switzerland-United Kingdom treaty of 1993. That only has effect in relation to deaths after 6 March 1995 and, therefore, refers only to inheritance tax. Four pre-CCT treaties remain in forces: those with India in 1956, Pakistan in 1957, France in 1963 and Italy in 1968. We wish to know why the Netherlands protocol can be given priority to be amended over the other treaties? Is it because negotiations with regard to the Netherlands were able to be completed more quickly than with the other treaties? Are steps being taken to deal with those other matters? Article III of the new protocol extends the provisions of article 13 of the convention from three to seven years, thereby enabling tax paid on death as a result of transfers within the three to seven year period before death to be eligible for credit relief. Why has it taken so long to amend the difference between the period of three and seven years? Will the Minister tell us what has been happening in the interim for those who have been caught within that period? I suspect that there are not many, but it is worth establishing the position. The three year rule is to be found in the equivalent provision in the 1979 South Africa treaty—as yet unamended—but not in the other treaties agreed subsequent to the introduction of capital transfer tax. For instance, there is no equivalent provision in the 1993 Swiss treaty. Why is that? The mention in article IV of well-known tax havens such as the Netherlands Antilles and Aruba might cause one to wonder whether they should be covered by a separate tax treaty. One response might be that the aim of an inheritance tax treaty, unlike an income tax treaty, is merely to determine which country has primary taxing rights and, if such tax is also payable in another country, to provide that that other country should give credit for tax already paid to the country with the primary taxing right in its computing of the tax due. I hope that once the Minister has had the opportunity to consider those matters, he will write to me. May I also seek an assurance that, given the use of Aruba and the Netherlands Antilles for tax avoidance, the Government are satisfied that the inheritance tax treaty cannot be used to assist avoidance but is intended only to avoid genuine double taxation? There seems to be a conflict between article V(2) of the protocol and the explanatory note accompanying the draft order, which states that "The Protocol enters into force 30 days after the date of the later notifications"— 5 notifications that are referred to in article V(2). However, article V(2) states: "on the date of'. Is there a 30-day delay or not? Or is there another explanation for that distinction?
Mr. Jack: I shall respond briefly to the hon. Member for North Warwickshire (Mr. O'Brien). I should have welcomed him to the Committee in his new guise; this is his first Committee as spokesman on Treasury matters. The protocol seeks to amend our arrangements with the Netherlands and the hon. Gentleman asked about other treaties that have not been amended. I asked the same question when the matter was put before me. The Treasury wrote to all other states with which we have double taxation agreements, saying that, with the arrival of inheritance tax we wished to ensure that the treaties were compliant with the change from capital transfer tax to inheritance tax. Only Sweden and the Netherlands replied, saying that they wished the treaties to be amended. We have assumed that others will have taken inheritance tax to be the equivalent of capital transfer tax, because the treaties deal in general terms with that sort of tax arrangement. In other words, we have responded to those countries that specifically asked that the treaties be amended. This is the second such amendment, the first being with Sweden. The honourable Gentleman asked about article III. If he is still unsure after I have answered, I shall certainly write to him. The change from three to seven years is not a delay; it simply reflects the provisions in inheritance taxation for the making of lifetime gifts. We have simply corrected the number of years provided in the treaty that are allowed under inheritance tax rules for the making of lifetime gifts. I hope that that answer also deals with the honourable Gentleman's question about the Swiss treaty. Obviously, if countries have not asked for alterations there may be a lack of fit, but we assume that the 6 inheritance tax provisions are deemed to have been accepted by other countries that have not asked for their treaties to be amended. The honourable Gentleman asked about article IV and about separate tax treaties. We have an extensive and continuing range of negotiations all over the world in trying to expand our range of double taxation treaties. However, the protocol is about amending an existing treaty. I have told the Committee the scope and scale of what the Netherlands has requested to comply with the existing treaty. We obviously consider other opportunities, and I shall reflect further on what the honourable Gentleman said about Aruba and on whether tax avoidance has been taken into account. The short answer is that protocol deals with inheritance tax matters. We have always been aware of the other matters mentioned by the honourable Gentleman. The honourable Gentleman asked whether there was any discontinuity between the explanatory note and article V. I shall consider that carefully, but I suspect that we shall find more details about the timescale in the principal legislation—the treaty. The only difference is the—mention of a 30-day delay—which starts when both parties to the treaty have completed their parliamentary procedures. In other words, there is a 30-day delay once both Governments have agreed. I shall establish precisely how long that delay is.
Mr. Mike O'Brien: I am grateful to the Financial Secretary to the Treasury for his welcome and for his explanations. I take this opportunity to reciprocate your seasonal greetings, Mr. Winterton. I hope that we can proceed expeditiously to deal with the order, so that we can all enjoy the festive season.
Question put and agreed to.
Resolved, That the Committee has considered the draft Double Taxation Relief (Taxes on Estates of Deceased Persons and Inheritances and on Gifts) (Netherlands) Order 1995
Committee rose at nineteen minutes to Eleven o'clock.7
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Winterton, Mr. Nicholas (Chairman)
Cunningham, Mr. Jim
Fox, Dr Liam
Lloyd, Sir Peter
O'Brien, Mr. Mike
Porter, Mr. Barry